Philip Morris USA, Inc. (Philip Morris), a cigarette manufacturer, appeals a
judgment in favor of Betty Bullock awarding her compensatory and punitive damages
after a jury trial. Philip Morris challenges the sufficiency of the evidence to support the
verdict on several counts based on products liability and fraud, the jury instructions, the
admission of evidence, and the punitive damages award. Jodie Bullock, Betty Bullock's
successor in interest, also appeals challenging a conditional new trial order reducing the
amount of punitive damages by way of remittitur.1 Bullock's attorney, Michael J.
Piuze, appeals an order awarding attorney fees against him as a sanction.

We conclude that the refusal of Philip Morris's proposed jury instructions on
punitive damages was proper and hold that the extreme reprehensibility of Philip
Morris's conduct justifies a ratio of punitive damages to compensatory damages
significantly greater than a single-digit. We also conclude that Philip Morris has shown
no error with respect to liability or punitive damages and that Bullock has shown no
error in the remittitur, and therefore affirm the judgment. Finally, we hold that the court
had no authority to award attorney fees as a sanction and therefore reverse the sanctions
order.

FACTUAL AND PROCEDURAL BACKGROUND

1. Factual Background

Bullock smoked cigarettes manufactured by Philip Morris for 45 years from
1956, when she was 17 years old, until she was diagnosed with lung cancer in 2001.
She smoked Philip Morris's Marlboro brand of cigarettes until 1966, and then switched
to its Benson & Hedges brand.

Scientific and medical professionals in the United States and worldwide
generally agreed by the late 1950's that cigarette smoking caused lung cancer, after
several epidemiological studies reached that conclusion. Philip Morris and other
cigarette manufacturers sought to cast doubt on the increasing body of knowledge
supporting the conclusion that smoking caused lung cancer and sought to assuage
smokers' concerns. To that end, Philip Morris and other cigarette manufacturers issued
a full-page announcement in newspapers throughout the United States in January 1954
entitled "A Frank Statement to Cigarette Smokers." The announcement stated, "Recent
reports on experiments with mice have given wide publicity to a theory that cigarette
smoking is in some way linked with lung cancer in human beings," and stated,
"[d]istinguished authorities point[ed] out" that there was no proof that cigarette smoking
caused cancer and that "numerous scientists" questioned "the validity of the statistics
themselves."

The Frank Statement stated, "We accept an interest in people's health as a basic
responsibility, paramount to every other consideration in our business. [] We believe
the products we make are not injurious to health. [] We always have and always will
cooperate closely with those whose task it is to safeguard the public health." It
announced the formation of the Tobacco Industry Research Committee and stated, "We
are pledging aid and assistance to the research effort into all phases of tobacco use and
health. This joint financial aid will of course be in addition to what is already being
contributed by individual companies. [] . . . [] In charge of the research activities of
the Committee will be a scientist of unimpeachable integrity and national repute. In
addition there will be an Advisory Board of scientists disinterested in the cigarette
industry. A group of distinguished men from medicine, science, and education will be
invited to serve on this Board. These scientists will advise the Committee on its
research activities." In the years that followed, the Tobacco Industry Research
Committee and its publicists disseminated the message that there was no proof that
cigarette smoking was a cause of lung cancer and other diseases through news releases,
distribution of research and editorial materials favorable to the tobacco industry,
personal contacts with editors, journalists, and producers, and other means.

Philip Morris for many years publicly continued to insist that there was no
consensus in the scientific community that cigarette smoking was a cause of lung cancer
and that Philip Morris was actively pursuing scientific research to resolve the purported
controversy, while privately acknowledging that there was no true controversy, that its
true goal was to discredit reports that linked smoking with lung cancer, and that Philip Morris had no intention of funding research that would reveal the health hazards of
smoking. The Tobacco Institute, a trade organization funded by Philip Morris and other
cigarette manufacturers, issued a press release in 1961 discrediting a recent article and
stating that the views that smoking caused cancer "are a subject of much disagreement
in the scientific world" and "the cause or causes of lung cancer continue to be
unknown." The Tobacco Institute stated in a press release in 1963 that the tobacco
industry was "vitally interested in getting the facts that will provide answers to
questions about smoking and health," and described the industry's research efforts as a
"crusade for research – in the agricultural stations, the scientific laboratories, and the
great hospitals and medical centers of the nation." It stated, "the industry does not
know the causes of the diseases in question."

A cigarette company executive appearing before Congress in 1965 on behalf of
several cigarette manufacturers, including Philip Morris, stated that "[n]early everyone
familiar with these difficult problems will agree . . . that there is a very high degree of
uncertainty" whether "smoking causes cancer or any other disease." Later that year, the
Tobacco Institute issued a press release stating, "Research to date has not established
whether smoking is or is not causally involved in such diseases as lung cancer and heart
disease, despite efforts to make it seem otherwise. The matter remains an open
question--for resolution by scientists." The press release stated, "we are earnestly trying
to find the answers," and, "If there is something in tobacco that is causally related to
cancer or any other disease, the tobacco industry wants to find out what it is, and the sooner the better. If it is something in tobacco or the smoke, I am sure this can be
remedied by the scientists."

Philip Morris's chief executive officer and chairman of the Executive Committee
of the Tobacco Institute, Joseph Cullman III, stated on the television news program
Face the Nation (CBS, Jan. 3, 1971), "if any ingredient in cigarette smoke is identified
as being injurious to human health, we are confident that we can eliminate that
ingredient." He stated further, "We do not believe that cigarettes are hazardous; we
don't accept that." The Tobacco Institute issued a report in 1979 entitled Smoking and
Health 1969-1979: the Continuing Controversy, stating, "Scientists have not proven that
cigarette smoke or any of the thousands of its constituents as found in cigarette smoke
cause human disease." The Tobacco Institute issued a report in 1984 entitled The
Cigarette Controversy: Why More Research is Needed, stating, "it is not known whether
smoking has a role in the development of various diseases . . . a great deal more
research is needed to uncover the causes and the mechanisms involved in their onset."
The 1984 report stated that the theory that cigarette smoking causes various diseases "is
just that, a theory" and stated, "There were basic flaws in the methods used in the major
epidemiological surveys that cast doubts on the accuracy of the claimed correlations."

Contrary to its repeated public pronouncements, the evidence shows that Philip
Morris privately acknowledged the link between cigarette smoking and lung cancer and
other diseases and sought to avoid promoting any research that would reveal that link.
An internal document prepared by Philip Morris in 1961 for purposes of research and development stated, "Carcinogens are found in practically every class of compounds in
smoke," and provided a "partial list" of 40 "carcinogens" in cigarette smoke.

A 1970 memorandum from a Philip Morris research scientist to its president
stated of the Council for Tobacco Research, the successor of the Tobacco Industry
Research Committee, "It has been stated that CTR is a program to find out ‘the truth
about smoking and health.' What is truth to one is false to another. CTR and the
Industry have publicly and frequently denied what others find as ‘truth.' Let's face it.
We are interested in evidence which we believe denies the allegation that cigaret
smoking causes disease." Notes from a 1978 meeting of cigarette company executives
and legal counsel state that the Tobacco Industry Research Committee "was set up as an
industry ‘shield' " and that the Council for Tobacco Research "has acted as a ‘front.' "

Dr. William Farone, a chemist employed by Philip Morris as a scientific
researcher beginning in 1976 and as Director of Applied Research from 1977 to 1984,
testified at trial that his superiors informed him that cigarette smoking caused cancer
and was addictive when he first began to work for the company. Dr. Farone testified
that during his years at Philip Morris there was no controversy among its scientists as to
whether smoking caused diseases, and that public statements that it was not known
whether smoking played a role in the development of various diseases and that a great
deal more research was needed to identify the causes of the diseases were false. He
testified that another public statement challenging the epidemiological research as
inconclusive was a misleading half-truth and that Philip Morris's scientists knew that
cigarette smoke contained carcinogens and that the carcinogens caused cancer.

Dr. Farone testified that Dr. Thomas Osdene, Philip Morris's Director of
Research, and others told him on several occasions that Dr. Osdene's real job and the
job of scientists working under him was to maintain the appearance of a scientific
controversy concerning smoking and health. Moreover, Dr. Farone testified that Philip
Morris performed no animal toxicity studies of cigarettes in the United States, pursuant
to a "gentleman's agreement" with other cigarette manufacturers, but arranged for a
company in Germany to perform toxicity tests on animals there. Other Philip Morris
scientists explained to Dr. Farone that the reason for testing cigarettes abroad was so the
results would not be available by subpoena in the United States. The test results were
sent to Dr. Osdene, usually at his home, who would report the results to other Philip
Morris scientists verbally and destroy the written records.

Philip Morris conducted animal research in the United States on the addictive
effects of nicotine in the early 1980's. It sought to develop a substitute for nicotine that
would produce the same addictive effects but without the adverse cardiovascular effects
of nicotine. Philip Morris closely guarded the results of its research and threatened to
sue its former scientists who proposed publication of an article. Philip Morris
successfully developed nicotine analogs and had the ability to remove nicotine from
cigarettes, but did not do so. Moreover, Philip Morris added urea to cigarettes, which
becomes ammonia when heated, to enhance the effect of nicotine. Philip Morris added
approximately 250 different substances to tobacco in cigarettes to enhance the flavor
and for other purposes. A former Philip Morris research scientist who worked for the
company in the early 1980's testified, "Never once in my whole time at the company did I hear any concern for the customer, other than one scientist[] who was complaining
that he was repeatedly--repeatedly having his research changed in direction any time he
came upon some hot research."

Philip Morris heavily advertised its cigarettes on television in the 1950's and
1960's, until the federal government banned cigarette advertising on television in 1970.
Television advertising had a particularly strong influence on youths under the age of 18,
for whom there was a positive correlation between television viewing time and the
incidence of smoking. Philip Morris's print advertisements for Marlboro and other
cigarette brands in 1956, when Bullock began smoking at the age of 17, and generally in
the years from 1954 to 1969, depicted handsome men and glamorous young women.
Some advertisements featured slogans such as "Loved for Gentleness" and " ‘The
gentlest cigarette you can smoke.' "

Philip Morris and other cigarette manufacturers entered into a Master Settlement
Agreement (MSA) with 46 states, including California, in 1998 settling civil litigation
by the states against the manufacturers. The manufacturers denied the allegations of
wrongdoing and admitted no liability, but agreed to several restrictions on the
advertising and promotion of cigarettes. They also agreed to dissolve the Tobacco
Institute, the Council for Tobacco Research, and the Council for Indoor Air Research,
and agreed not to target youths as smokers or potential smokers, suppress research on
the health hazards of smoking, or make any misrepresentation of fact concerning the
health consequences of smoking. The participating cigarette manufacturers also agreed to pay several billion dollars per year to the states, with each manufacturer responsible
for a portion of the total payment according to its market share.

Philip Morris issued a statement on its Internet site in December 1999
acknowledging for the first time, "There is an overwhelming medical and scientific
consensus that cigarette smoking causes lung cancer, heart disease, emphysema and
other serious diseases in smokers. Smokers are far more likely to develop serious
diseases, like lung cancer, than non-smokers. There is no ‘safe' cigarette. These are
and have been the messages of public health authorities worldwide." The statement also
acknowledged that cigarette smoking is addictive.

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Click the case caption above for the full text of this long case.

Outcome: The judgment is affirmed, and the sanctions order is reversed. Bullock and Piuze
are entitled to recover their costs on appeal.